Scared of using credit cards? CIB says don’t be!

The credit card is a simple and easy financial tool and whether it is helpful or harmful depends on how and when it’s used. Here is everything you need to know about making the most out of credit cards without falling into traps.

Behind the Scenes: 

The credit card is an easy and safe payment method in all your daily transactions including grocery shopping, fueling up your car, or completing governmental services from issuing your drivers’ license or car license, renewing your passport, or paying your bills (electricity, telephone, etc.).

The credit card is an effective payment method in case of emergencies. For example, if a hypermarket is celebrating its anniversary and they have an irresistible offer of 50% off all LCD screens for one week. You want to make the most of this offer, but you do not have enough in your account and your paycheck is two weeks away, this is the perfect time to use your credit card to buy now and pay later. 

All you need to do make sure you have sufficient credit on your card, pay for the product or service using your credit card at the POS. The amount will be deducted from your card and you can enjoy your purchase.

So, what just happened here?

By using a credit card, the customer has purchased the product or service today and will repay the bank over a preapproved amount of time, up to 55 days. Cardholders must pay a minimum of 5% of the debited amount. 

If it’s really this simple, why are some people afraid of using credit cards?

Some customers think that by using credit cards, their financial burdens increase due to interest rates and fees. Using credit cards when shopping is the best option for many people because it gives them more spending options, aside from their available funds and gives them a grace period of up to 55 days from the transaction date.

How can I qualify for a credit card?

Just about everyone over the age of 21 with an income can qualify for a credit card. Individuals who don’t have  an income can apply for secured credit cards. For secured cards, users need to place an amount of money with the bank against which the credit is issued. 

Here are some key things you must know about credit cards

1- The bank determines the credit limit based on the corporate banking department.

2- The credit limit can be used for in-store purchases, national and international cash withdrawal, or online purchases

3- Payback must occur before the end of the 55-day grace period and can be paid in full or in 5% increments.

4- Credit cards have issuance and renewal fees. You can learn about all relevant fees through the terms and conditions and the payment schedule.

5- Payment types and details 

Grace period, billing cycle, and minimum payments – know these terms by heart.

A grace period is the number of days you have to pay the amount in full before being charged interest. This differs from one bank to another, with some banks offering up to 55 days!

Here’s how it works: Let’s say that your credit card billing cycle is between 1 January to 31 January, with a due date of 25 February. Any purchases made within the cycle can be made until the payment due date – which is the end of yourbilling cycle. You should pay the amount due before the date, in this case 25 February.

Credit cards also offer a “revolving balance” option where you aren’t required to pay the entire amount that you have borrowed right away. Here, you are allowed to pay a minimum requested payment and carry the remainder over to the following month, with monthly interest added to the amount. 

Pro tip: To enjoy the maximum number of interest-free days, always try to spend on the first week of your billing cycle.

6- Credit score

The Egyptian Credit Bureau maintains the ‘I-Score’ database, which is a database of information on credit consumers and SMEs to provide banks with data needed before the approval of credit limits. I-Score personnel are entitled to access its database to carry out creditworthiness checks on consumers, and the entity holds almost 100% of credit data on consumers and SMEs from commercial banks, thus providing clear indicators to banks when needed. 

Using a credit card can affect your credit score in several ways, either positively or negatively. You can positively affect the most important credit score factor, payment history, by making your payments on time 100% of the time. A late credit card payment will be reported and can hurt your score.

When you meet payments on time, your bank considers you a reliable client, and will report it to I- Score to further evaluate whether you’re a good borrower or not. A credit card used wisely will help you build your credit, and good credit can help you obtain future loans and credit products.

7- Know your rights

The bank protects all the information about your transactions and, as a cardholder, you have the right to contest any transactions that have taken place within the past month and the bank will investigate and fix accordingly. Please review all transactions when you receive your monthly credit card statement.

8- Spend more, spend smart 

To increase the number of credit card users and their transactions, banks offer a variety of incentives and reward programs, primarily based on clients’ needs. Many cards give you cash back, shopping benefits or travel rewards, and Bonus points, as well as a promotional 0% interest period. When you receive a card, check your benefits statement for details; you can do more with the right card, so choose one with a reward program that fits your lifestyle and spending.

9- You can still get cash out of your credit card through “cash advances”

Most banks provide cash advances, which is a service that allows cardholders to withdraw money from ATMs up to a certain amount within their credit limit. Withdrawal does not have an acceptance period and the interest is calculated from the date of withdrawal In Addition to the commission of cash withdrawal, unlike purchasing. 

Remember to always check your fees.

Pros of having credit cards

Easy to use. Credit cards are accepted globally, so you don’t have to worry about carrying cash when you travel.

A Tip for when you travel: Always purchase in the currency of the country you are visiting rather than the Egyptian pound. This way you will be charged using the exchange rate at the store and the bank.

Safer than cash. If your card is lost or stolen, just call your bank and deactivate it, and if it is stolen and used fraudulently, you are much more likely to get the money back if you inform the bank. It is also safe to use your credit card for online purchases as credit cards have multilayer security. On the back of your card you will find a unique Card Verification Value (CVV), a three-digit number, that you enter when performing online purchase, or your One-Time Password (OTP). These numbers ensure that the card is physically in your hand and that it is not being used by anyone but you. 

Buy now, pay later. If you do not have the cash you need until your next payday or you need to make a major purchase, a credit card gives you some extra financial wriggle room.

Protection. Credit shield is an optional insurance program or facility for credit cards offered by banks where, in unforeseen or unfortunate circumstances (death, or permanent/total disability), cardholders' dues are taken care of. 

Freebies. You will often receive rewards with credit cards like air miles, reward points and cashback. 

Cons of having credit cards:

Late payments affect your credit score. If you make your payment after the monthly deadline shown on your statement, you will have to pay a late payment charge. On top of this, your bank will report it to I-Score and this could have a negative impact on your future credit applications.